April 26, 2017 Chicago | July 11, 2017 Boston | Nov. 9, 2017 San Francisco | The Women Adviser Summit is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.

B-Ds countersue insurers in clash over stranger-originated annuities

Tangle stems from estate planner's alleged scheme to profit from deaths of annuitants

A pair of broker-dealers that were sued by insurers for participating in so-called stranger-originated annuity transactions fired back this week.

On Monday, Lifemark Securities Corp. filed a countersuit against Transamerica Life Insurance Co. in the U.S. District Court in Rhode Island. On the same day and in the same court, The Leaders Group Inc. filed its counterclaim against Western Reserve Life Assurance Co.

Both broker-dealers are suing for damages and attorneys' fees resulting from what the firms claim is the negligence of the insurance companies.

The countersuits are the latest salvos in what's been a yearlong running battle between the two insurers, the broker-dealers and their registered representatives. Attorney Joseph A. Caramadre of Cranston, R.I., and his business Estate Planning Resources Inc. are at the center of the imbroglio.

The insurers allege that Mr. Caramadre solicited terminally ill people through advertisements, offering them $2,000. Mr. Caramadre and other investors then purchased variable annuities with a death benefit rider on the sickly individuals' lives, the carriers claim.

The alleged scheme was a market play that gave investors the opportunity to get substantial returns from enhanced death benefits. At the very least, the investors would get their money back when annuitants died.

The insurers also accused Lifemark, The Leaders Group and a third broker-dealer (Fortune Financial Services Inc.) of fraud, unjust enrichment and negligence for allegedly having processed the variable annuities bought on the behalf of the sickly annuitants.

In their counterclaims, Lifemark and The Leaders Group denied the insurers' charges. Instead, the firms say that Transamerica and Western Reserve failed to ask about the annuitants' life expectancy or health condition.

Lifemark also claimed that Transamerica had been selling annuities in which the annuitants and investors were unrelated “for years.”

The Leaders Group and Lifemark claim they are entitled to be indemnified of their losses and costs due to the insurers' alleged negligence and errors.

“We have a contract between The Leaders Group and Western Reserve, and it has an indemnification provision,” said Deming Sherman, an attorney with Edwards Angell Palmer & Dodge LLP, who is representing The Leaders Group. “If there's something wrong here, and we get blamed for it, then we're indemnified. It's just that simple.”

Lifemark also claims that Transamerica has breached its contractual obligations to Lifemark, acted in bad faith and breached its duty of good faith and fair dealing.

The outcome of the cases will likely revolve around the brokers who are named defendants in the insurers’ suits: Edward L. Maggiacomo Jr., who is still with Lifemark; Edward J. Hanrahan, who is still with The Leaders Group; and Harrison S. Condit, who is no longer with Fortune Financial, according to Finra’s BrokerCheck.

“The question that will come up is, what role did the registered reps play in the actual sale and creation of the policies, and did they in fact go out and pick people off the street and lie about their health?” said Dennis J. Concilla, partner at Carlile Patchen and Murphy and head of the firm’s Securities Practice Group.

“If they did, then they can’t rely on that indemnity provision,” he added. “If they did everything that the insurance company told them to do, then they may be able to rely on the provision.”

Mr. Concilla is not working on this lawsuit but has worked with broker-dealers on cases concerning viaticals.

Fortune Financial has not filed a countersuit, and a call to the firm's attorney, Jeffrey S. Brenner of Nixon Peabody LLP, was not immediately returned. A call to Michael J. Daly, an attorney at Pierce Atwood LLP who is representing Western Reserve and Transamerica, was not immediately returned.